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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI PAWAN SINGH, JM & DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL, SURAT BENCH, SURAT BEFORE SHRI PAWAN SINGH, JM & DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.3330/AHD/2016 (िनधा�रणवष� / Assessment Year: (2012-13) (Physical Court Hearing) D.C.I.T., Circle-2(1)(1), M/s Transit Geo Systems Integrator Pvt. Ltd., 13-C-404, 1st Floor, Room No.223, Aayakar Bhavan, Vs. Parshvanath Complex, Above Bhakti Majura Gate, Surat-395001 Automobiles, Udhna, Magdalla Road, Surat-395017 �थायीलेखासं./जीआइआरसं./PAN/GIR No.: AADCT 4158 N (Appellant) (Respondent)
Assessee by : Shri Rasesh Shah, C.A Respondent by : Shri Ritesh Mishra– CIT-DR सुनवाईकीतारीख/ Date of Hearing : 17/06/2022 घोषणाकीतारीख/Date of Pronouncement : 22/08/2022 आदेश / O R D E R PER DR. A. L. SAINI, ACCOUNTANT MEMBER: Captioned appeal filed by the Revenue, pertaining to assessment year 2012- 13, is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-2, Surat, [‘CIT(A)’ for short] dated 06.09.2016, which in turn arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’), dated 31.03.2015.
The grounds of appeal raised by the Revenue are as follows:
“1. Whether on the facts and circumstances of the case and in Law, Ld. CIT(A) has not erred in deleting the additions of Rs.4,03,34,386/- on account of Non genuine contract expenses & Rs.1,20,71,990/- on account of section 40A(3) of the Act? 2. Whether on the facts and in the circumstances of the case and in Law, Ld. CIT(A) has not erred in deleting the addition of Rs.4,03,34,386/- to the total income on account of non-genuine contract expenses without appreciating the fact that assessee as well as contractors, who happened to the relatives of directors of assessee company, failed to substantiate, with corroborative evidence, that the contractors carried out the work for the
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. assessee company, for which payments were made to them, the sine qua non of section 37(1) of the I.T. Act for claiming expense as genuine? 3. Whether on the facts and in the circumstances of the case and in Law, Ld. CIT(A) has not erred in deleting the disallowance of Rs.1,20,71,990/- u/s 40(A)(3) of the I.T. Act on the basis of documents submitted by the assessee during the Appellate Proceedings, even though these documents were available with the assessee during assessment proceedings but they were not produced before Assessing Officer during assessment proceedings. Thus, these documents were considered by Hon'ble CIT(A) in violation of Rule 46 and without allowing the Assessing Officer to rebut the claim of the assessee? 4. On the facts and in the circumstances of the case and in Law, Ld. CIT(A), Surat ought to have upheld the order of the Assessing Officer. It is, therefore, prayed that the order of the Ld. CIT(A), Surat may be set-aside and that of the Assessing Officer’s order may be restored.” 3. The facts of the case which can be stated quite shortly are as follows: The assessee before us is a Private Limited Company and engaged in the business of computer networking and security system including sale and purchase of electronic items and its maintenance work on contract basis. The assessee- company filed its return of income for the year under consideration for AY 2012- 13, declaring total income of Rs.51,90,250/-. Subsequently case was selected for scrutiny by issuing notice u/s143(2) of the Act on 08.08.2013 and duly served upon the assessee. Subsequently, notice u/s 142(1) of the Act was issued on 16.01.2014 and duly served upon the assessee. During the assessment proceedings, the assessing officer noted that assessee has issued shares to eleven (11) parties which are either directors himself or their family members or the employees of assessee-company. Total amount of share capital and premium issued to these parties was Rs.1,54,55,821/- consisting of share value of Rs.12,00,690/- and premium thereupon of Rs.1,42,55,131/-. During the course of assessment proceedings, the assessee was asked to submit various details including details of shareholders. In response, the assessee submitted written submission before the Assessing Officer, which is reproduced below: “the directors and its family member have purchased the shares at premium by passing various adjustment entries against the amount lying as sundry creditors in their name. It has further submitted that assessee-company has allotted job Page | 2
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. work to various parties during the year and amount was shown was payable to the said parties. Thus, the assessee company has allotted shares at premium for all such parties for which necessary adjustment entry has been passed in the books of the company. To establish and prove the genuineness of claim, the ledger copy of accounts of the said parties from the books of the company along with contra confirmation reflecting job work carried out was submitted (Refer Annexure-M). Thus, there is no payment received during the year under consideration and hence question of submitting bank statements do not arise. The ledger copy of share capital account and share premium account from the books of the investors along with their return of income and balance sheet for relevant AY 2012-13 as called for are submitted for their kind verification (Annexure-N)” 4. However, after going through the reply of the assessee, the assessing officer observed that assessee has neither received any share application money nor any premium from any of the parties in their bank accounts. The Assessee itself in its reply has admitted that there were some outstanding for some job work engaged in the name of various family members and shares at premium has been allotted only to make adjustment entry. Therefore, the assessing officer again issued a detailed show-cause notice dated 19.03.2015, which is reproduced by the assessing officer in page no.7 to 13 of assessment order. In response to the said show -cause, notice, the assessee has submitted its reply dated 26.03.2015, which is reproduced by the assessing officer in page no. 13 to 15 of assessment order. After considering the submission of the assessee, the AO has rejected the contention of the assessee and made addition to the tune of Rs.4,03,34,386/- on account of share premium and share capital.
Aggrieved by the order of assessing officer, the assessee carried the matter in appeal before Ld. CIT(A), who has held that client list of the assessee includes, M/s HPCL, M/s Indian Oil Corp. Ltd., M/sGujarat State Electricity Corporation Ltd., M/s Essar Oil Ltd., M/s SMIMER, M/s NTPC Ltd etc. These clients are reputed clients. The AO has accepted the fact that the contract work was carried out by him for the various clients and the payment has been received from these clients. The adverse finding that the books of accounts of the assessee's contractor are not properly maintained cannot be made the basis for disallowing the expenses. Any ambiguousness and incongruity in the books of accounts of the Page | 3
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. contractors cannot be made the base for disallowing the expenses of the assessee. The AO has not disputed the book results and the GP/NP shown by the assessee. The disallowance of the labour contract expenses of Rs.4,03,34,386/- makes the GP the assessee @ 33% which is itself absurd in the line of assessee`s business. Therefore, based on these facts, the ld CIT(A) deleted the addition.
Aggrieved by the order of Ld. CIT(A), the Revenue is in appeal before us.
Before us, Shri Ritesh Mishra, Ld. CIT-DR for the Revenue pleads that assessing officer has already noted in his detailed findings that assessee has issued share capital and share premium to the labours which do not have the capacity to pay. Regarding applicability of section 37 of the Act, ld DR submits that section 37 of the Act, comes in picture only when the expenses are genuine, while in the instant case these are bogus expenses debited by assessee in its books of accounts therefore, ld DR submitted that addition made by the assessing officer may be upheld.
On the other hand, Shri Rasesh Shah, Ld. Authorized Representative (AR) for the assessee, defended the order passed by Ld. CIT(A). The ld Counsel submitted that the AO had issued summons to various contractors of the assessee and the statement were also recorded. In the statement recorded these persons have confirmed that they have done the labour contract work for the assessee- company. The AO has made the addition on the observations made pertaining to contractor's business affairs and not the assessee's own business. It was contended that the assessee had carried out contract work for security devices, CCTV Camera etc. for Government, Semi Government, PSU's etc. and the AO has not enable to point out any defects in the books of accounts and neither the books of accounts has been rejected u/s 145(3) of the Act. Therefore, ld Counsel prays the Bench that order passed by ld CIT(A) is just and proper and the same may be upheld.
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. 9. We have heard both the parties and perused the material available on record. We note that assessee has submitted its return of income and computation of total income which is given in paper book pages nos. 67 to 74. The assessee-company has filed its audited financial statements, which is placed at paper book pages nos. 75-76. The assessee-company also filed a certificate issued by CA for valuation of shares, which is placed at paper book pages nos. 77-78. The assessee-company submitted valuation report of equity shares, which is placed in assessee`s paper book pages nos.79-84.
Apart from this, the assessee-company has submitted for each shareholder in respect of share capital and share premium allotted to them, the following documents and evidences: (a) In respect of Shri Balvantilal Ranchhoddas Mehta- as follows: i) Ledger account (pb pages 85-86),ii) Acknowledgment of return of income (pb page 87), iii) Balance-sheet, P&L and capital a/c (pb page 88), iv) Share application form (pb pages 89-90), and v) Sample copy of work order (pb page 91). (b) In respect of Shri Dhwani R. Mehta, the following evidences were submitted, viz: i) Ledger account (pb pages 92-93),ii) Acknowledgment of return of income (pb page 94),iii) Balance-sheet, P&L and capital a/c (pb pages 95),iv) Share application form (pb pages 96-97),v) Sample copy of work order (pb page 98),vi) Statement recorded u/s 131 (pb pages 99-100), (c) In respect of Shri Kamlesh Malaviya, the following evidences were submitted, viz: i) Ledger account (pb pages 101),ii) contra account of the assessee from the books of contractors (pb page 102),iii) Acknowledgment of return of income alongwith, iv) computation of total income (pb pages 103-104),iv) Share application form (pb pages 105-106),v) Sample copy of work order (pb page 107), vi) statement recorded u/s 131 (pb pages 108-109). (d) In respect of Shri Kamlesh Marviya (HUF), the following evidences were submitted, viz: i) Leger account (pb pages 110-112),ii) Acknowledgment of return
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. of income along with computation of total income (pb pages 113-114), iii) share application form (pb pages 115-116),iv) sample copy of work order (pb page 117), (e) In respect of Geo Services (Prop: Rajesh Balvantlal Mehta HUF), the following evidences were submitted,viz: i) Leger account (pb pages 118-119), ii) Acknowledgment of return of income (pb page 120), iii) Balance sheet, P&L a/c and capital a/c of Ranesh Balvantlal Mehta HUF (pb page 121),v) Share application form (pb pages 122-123),v) Sample copy of work order (pb page 124),vi) Statement recorded/s 131 (pb pages 125-126). (f) In respect of Shri Jay Traders (Prop: Dipesh Shashikant Dasadia HUF), the following evidences were submitted, viz: i) Ledger account of Jay Traders (pb pages 27-128), ii) Contra account of the assessee from the books of Jay Traders (pb 129-130), iii) Acknowledgment of return of income (pb page 131), iv) Balance-sheet, P&L ac and capital a/c of Jay Traders (pb 132-134), v) Share application form (pb pages 135-136),vi) Sample copy of work order (pb page 137),vii) Statement recorded u/s 131 (pb pages 138-139) (g) In respect of Transit Care (Prop: Shashikant T Dasadia HUF), the following evidences were submitted, viz: i) Ledger account of Transit Care (pb pages 140- 141), ii) Contra a/c of the assessee from the books of Transit Care (pb 140-141), iii) Acknowledgment of return of income (pb page 144), iv) Balance-sheet, P&L a/c and capital a/c of Transit Care (pb 145-146), v) Share application form (pb pages 148-159), vi) Sample copy of work order (pb page 150),vii) Statement recorded/s 131 (pb pages151-152). (h) In respect of K.K.Traders (Prop: Kalpesh Rajnikant Shah HUF), the following evidences were submitted, viz: i) Ledger account of K.K.Traders (pb pages 153- 154), ii) Contra a/c of the assessee from the books of K.K. Traders (pb 155- 156),iii) Acknowledgment of return of income (pb page 157), iv) Balance-sheet, P&L a/c & capital a/c of K.K.Traders (pb page 158-160), v) Share application form (pb pages 161-162), vi) Sample copy of work order (pb page 163).
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. (i) In respect of K.M. Traders (Prop: Kalpesh Rajnikant Shah), the following evidences were submitted, viz: i) Ledger account of K.M. Traders (pb page 164),ii) Contra a/c of the assessee from the books of K.M. Traders (pb page165), iii) Acknowledgment of return of income (pb page 166), iv) Balance-sheet, P&L a/c and capital a/c of K.M. Traders (pb 167-169), v) Share application form (pb pages 170-171), vi) Sample copy of work order (pb page 172), vii) Statement recorded u/s 131 (pb pages 173-174). (j) In respect of Unnati Traders Co.(Prop: Neha Dipesh Dasadia), the following evidences were submitted, viz: i) Ledger a/c of Unnati Trading Co. (pb pages 175- 176), ii) Contra a/c of the assessee from the books of Unnati Trading Co. (pb pages 177-178), iii) Acknowledgment of return of income (pb page 179), iv) Balance-sheet, P&L & capital a/c of Unnati Trading Co.(pb 180-182), v) Share application form filed before ROC (pb pages 183-184), vi) Sample copy of work order (pb page 185), vii) Statement recorded u/s 131 (pb pages 187-188). (k) In respect of Minal Traders (Prop: Minal Kalpesh Shah), the following evidences were submitted, viz: i) Ledger a/c of Minal Traders (pb pages 189-190), ii) Contra a/c of the assessee from the books of Minal Traders (pb 191-192),iii) Acknowledgment of return of income (pb page 193), iv) Balance-sheet, P&L a/c & capita a/c of Minal Traders (pb 194-196),v) Share application for filed before ROC (pb pages 197-198), vi) Sample copy of work order (pb page 199),vii) Registration documents of P. Tax Act &VAT Act (pb 200-202) and viii) Statement recorded u/s 131 (pb pages 203-204). 11. By submitting these plethora documents and evidences, the assessee-company claims that it has satisfied the three ingredients of section 68 of the Act, namely, identity, creditworthiness and genuineness. In addition to this, Ld. AR of the assessee submits that assessee-company does not have sufficient cash to pay these liabilities, therefore the assessee-company adopted alternative mode to plan to issue the shares to the creditors so that liabilities of these creditors can be discharged. Therefore, this kind of exchange of shares in lieu of liability being discharged, and no money has been transferred from bank account, only liability Page | 7
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. of the creditors got set off by issuing the equity shares / premium. Hence, genuineness of these transactions should not be doubted. Therefore, addition made by AO has rightly been deleted by ld CIT(A).
We note that ground pertains to making addition of Rs.4,03,34,386/- to the total income on account of non- genuine contract expenses without appreciating the fact that claim is fully supported by direct and corroborative evidences and has been indisputably incurred wholly and exclusively for the purpose of business and is, therefore, are allowable u/s 37(1) of the Income Tax Act, 1961. The AO found that assessee had incurred contract expenses of Rs.4,03,34,386/- under the head contract expenses but the AO held that the expenses claimed by assessee were doubtful and there was no link between the contract executed and the labour contracts payment shown by the assessee. The AO held that the labour contract shown by the assessee was a ploy to defraud the revenue by debiting bogus expenses. Since, the payment had not been made through the bank and therefore are not verifiable and hence the AO added this amount of Rs.4,03,34,386/- as bogus expenses. The ld CIT(A) observed that AO has made the addition by disallowing labour contract expenses by giving his observations on the books of accounts maintained by the various parties to whom the payment has been made by the assessee- company. The AO has not made any efforts or got inquiries conducted from the parties form whom the assessee had carried out the work regarding the installation of CCTV etc. and several, being Government agencies and PSU's. The AO has only made adverse comments on the ledgers maintained by the parties to whom the labour payments have been made. The AO has not made any comments on the examination on oath and statement recorded during the assessment proceedings of the following persons, viz:1. Dipesh S Dasadia,2. Rajesh B Mehta,3. Kamlesh L Marviya,4. Kalpesh Rajnikant Shah,5. Minal K Shah, 6. Neha D Dasadia, and 7. Dhwani R Mehta. The AO had examined all these contractors on oath during the assessment proceedings and the copy of the statement on oath was also furnished by the assessee during the appellate proceedings. In the statement on oath all the persons have confirmed the
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. transactions with the assessee and no adverse statements or submission were made by these contractors. The AO has completely based his premises for making the addition, on the suspicion regarding the affairs of the assessee's contractors. The AO has failed to prove that the assessee had not carried out any contract activity.
The ld CIT(A) noted that AO was required to conduct inquiries from the clients regarding the extend of work carried out and the payments received for the contract work. There is neither independent enquiry for fact finding done nor any material gathered as evidence to show that assessee had not carried out any work. The ld CIT(A) also observed that client list of the assessee includes, HPCL, Indian Oil Corp. Ltd., Gujarat State Electricity Corporation Ltd., Essar Oil Ltd., SMIMER, NTPC Ltd etc. The AO has accepted the fact that the contract work was carried out by him for the various clients and the payment has been received from these clients. The adverse finding that the books of accounts of the assessee's contractor are not properly maintained cannot be made the basis for disallowing the expenses. Any ambiguousness and incongruity in the books of accounts of the contractors cannot be made the base for disallowing the expenses of the assessee. The AO has not disputed the book results and the GP/NP shown by the assessee. The disallowance of the labour contract expenses of Rs.4,03,34,386/- makes the gross profit of the assessee @ 33% which is itself absurd in the line of assessee`s business. Therefore, based of these facts, ld CIT(A) held that AO has failed to point out any defects in the books of the assessee and the books have not been rejected u/s 145(3) of the Act. The AO's disallowance of the expenses of Rs. 4,03,34,386/- holding it as non- genuine contract expenses is without any basis and therefore the addition cannot survive, hence ld CIT(A) deleted the addition of Rs.4,03,34,386/-. We do not find any infirmity in the conclusion reached by ld CIT(A). That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. 14. Coming to ground No. 3 raised by the Revenue, wherein the Revenue`s main grievance is that Ld. CIT(A) has erred in deleting the disallowance of Rs.1,20,71,990/- u/s 40(A)(3) of the I.T. Act. Learned DR for the Revenue argued that ld CIT(A) deleted the addition, on the basis of documents submitted by the assessee during the Appellate Proceedings, even though these documents were available with the assessee during assessment proceedings but they were not produced before Assessing Officer during assessment proceedings. Thus, these documents were considered by Hon'ble CIT(A) in violation of Rule 46A of the Rules and without allowing the Assessing Officer to rebut the claim of the assessee, therefore, addition made by the assessing officer may be upheld.
Per contra, Learned Counsel for the assessee, pleaded that whatever documents submitted before the assessing officer, have been furnished before the ld CIT(A), hence there is no violation of Rule 46A of the Rules.
We have heard both the parties and observed that assessing officer held that assessee has made payments in excess of cash of Rs.20,000/- and has made a chart in the assessment order at para 5 under various heads giving details of the vouchers, invoice numbers, date and amount of payment made. The assessee was directed during the appellate proceedings to furnish each expense in tabular form showing name of the person to whom payment was made against particular day entries as per the chart prepared by the assessing officer in the assessment order. Therefore, we note that there were no new evidences before the ld CIT(A), whatever information submitted before the assessing officer, was submitted before the ld CIT(A) in tabular form, hence there is no violation of Rule 46A of the Rules, therefore we dismiss the ground No.3 raised by the Revenue.
On merits, we note that ld CIT(A) has examined the chart prepared by the assessee in tabular form. It was observed by ld CIT(A) that assessee had prepared single voucher of the various expenses incurred during the year under the same head in order to avoid multiple entry of petty expenses. The details furnished by
ITA No.3330/AHD/2016 A.Y. 12-13 M/s Transit Geo Suystems Integrators Pvt. Ltd. the assessee shows that the number of transactions of different amount head incurred on one day and it only for accounting purposes the assessee has prepared a single voucher clubbing all transactions and posted a single entry in the books of accounts. The details furnished during the appellate proceedings clearly show that no cash payments exceeding Rs.20,000/- have been made to a single person. These details were furnished by the assessee even before the assessing officer during the assessment proceedings, however the assessing officer has not taken cognizance of these facts in the assessment order. Therefore, we note that findings of the assessing officer that the provisions of section 40A(3) has been violated, in incorrect. Therefore, we are of the view that ld CIT(A) has rightly deleted the addition. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).
In the result, the appeal of the Revenue is dismissed. Order is pronounced on 22/08/2022 by placing the result on the Notice Board.
Sd/- Sd/- (PAWAN SINGH) (Dr. A.L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER Surat/िदनांक/ Date: 22/08/2022 Dkp Outsourcing Sr.P.S. Copy of the Order forwarded to 1. The Assessee 2. The Respondent 3. The CIT(A) 4. Pr.CIT 5. DR/AR, ITAT, Surat 6. Guard File By Order // True Copy // Assistant Registrar/Sr. PS/PS ITAT, Surat